RBI MPC Highlights: Key Announcements, Inflation Projections, and Economic Insights from October 2024 Meeting

The highly awaited Monetary Policy Committee (MPC) meeting of the Reserve Bank of India (RBI) for October 2024 finally decided on multiple impactful announcements that laid the foundation for the future course of Indian economy. Below is a summary of what was said, along with the broader ramifications for the economy, inflation, and financial markets.

1. Repo Rate Unchanged

The repo rate has been steady at 6.5% after the RBI maintained it for the tenth straight time. The decision follows expectations in the market, looking to strike a balance between the need to contend with inflation and the need to support the economy.

Implications: Home loan borrowers and businesses will continue to face existing interest rates, maintaining the current EMI burdens for borrowers.

2. Shift in Policy Stance

The RBI changed its policy stance from "withdrawal of accommodation" to "neutral," signaling a potential shift towards easing measures in the future. This change provides the central bank with more flexibility to adjust its approach based on evolving economic conditions.

Expert View: Kotak Alternate Asset Managers Ltd noted that this change could indicate the groundwork for potential rate cuts in the near future.

3. Inflation Concerns

Governor Shaktikanta Das emphasized that while inflation is showing signs of moderation, the central bank remains cautious due to potential risks. Consumer Price Index (CPI) figures for September could experience a noticeable uptick, driven by food prices.

Outlook: The RBI Governor mentioned that food inflation pressures might ease, thanks to favorable weather conditions, but vigilance will remain crucial to navigate risks.

4. Economic Growth Projections

The meeting also emphasised India's real GDP growth projection for 2024-25, which is pegged at 7.2%. Despite this sanguine backdrop, the RBI notes downside risk from factors such as global growth uncertainties and domestic challenges.

Real GDP growth was recorded at 6.7% YoY in the first quarter of the financial year, displaying persistent momentum despite near-term headwinds.

5. Financial Sector Health

In reassurance, Governor Das explained that the financial sector remains healthy, resilient and stable. RBI also keep close eye on NBFC with stress test warnings with regard to risk management level on their business fields.

Action Point: The Reserve Bank of India is focused on a strong financial system and will not hesitate to act against NBFCs that do not meet the expectations and criteria.

6. Increase in UPI Transaction Limit

UPI Transaction LimitRaised From ₹5,000 To ₹10,000 This initiative seeks to promote easy payment transactions, further developing the digital payment ecosystem and enabling higher-value regular consumer transactions.

However, this will allow bigger transactions and payments via UPI, in line with the RBI's direction of more digital and less payments.

7. International and Domestic Market Insights

Deputy Governor Michael Patra pointed out that foreign holdings of government bonds remain low at 3%, indicating room for further participation. Additionally, the outlook for crude oil prices appeared softer, a positive sign for inflation and overall economic stability.

8. Outlook on Consumption and Investments

The RBI Governor noted that domestic consumption has sustained growth momentum. However, investment activity requires support and monitoring to drive long-term economic growth. 

9. Challenges and Expectations

Vikas Goel, MD and CEO of PNB Gilts, hinted at a potential downward revision of growth forecasts, while Aditi Nayar, Chief Economist at ICRA, suggested that the current stance leaves room for changes in the policy, possibly signaling rate cuts.

10. Insights on Gold Loan Companies

The RBI addressed concerns regarding the conduct of gold loan companies. Governor Das underscored the importance of compliance, indicating that deficiencies in conduct would not go unchecked.

11. Monetary Policy Committee Changes

The meeting marked the debut of three newly appointed members of the MPC, bringing fresh perspectives to discussions.

Final Thoughts

The outcome of the MPC meeting in October 2024 highlighted the RBI's balancing act between growth and fighting inflation. The repo rate was retained at 6.5% and the policy stance was changed, not just for FIIs, but also for the industry and the economy, all discussions in the financial sector can expect changes in the coming months.

Even as inflation is worrisome, the outlook for GDP growth and some proactive measures like the UPI limit hike show pro-active handling of the economy.